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Mexico Would Take Hit If US Debt Talks Fail

Craftswomen work on Christmas decorations in a workshop in the village of Chignahuapan in the state of Puebla, Mexico, November 26. 2007. Some of the spheres they produce are exported to the United States.

If negotiations aimed at preventing the United States from sliding over the so-called 'fiscal cliff' fail, the impact could be devastating to Mexico, America's third-largest trading partner.

The U.S. and its southern neighbor had $500 billion worth of trade in goods and services last year, mostly in electrical machinery, vehicles and crude oil. Mexico exported $15.8 billion worth of agricultural products to the United States in 201, making it the second-largest supplier of such goods.

If U.S. President Barack Obama and Republicans in Congress fail to compromise on a deficit-cutting package of revenue increases and spending cuts, it could spark a recession, which could mean layoffs for some Mexican workers.

"While Mexico is doing relatively well economically, the country would take a hit if debt talks fail," said Eduardo Garcia, with the Mexican financial website Sentido Común.

"Mexico's economy would suffer quite a bit if the U.S. fails to reach an agreement and these automatic fiscal measures go into effect because [Mexico] is so integrated into the U.S. economy," he said. Thirty percent of the Mexican economy is export-based and the U.S. consumes 80 percent of those products, he added.

In Washington Thursday, the Speaker of the Republican-led U.S. House of Representatives, John Boehner, accused President Obama of risking the "fiscal cliff" by stubbornly resisting spending cuts.

Republicans still are not budging on Mr. Obama's demands for higher tax rates on income above $250,000 a year, despite the president's election victory and opinion polls showing support for the idea.

The U.S. president has argued Republicans must accept higher tax rates on the wealthiest as part of any deal in order to avoid rates rising on 98 percent of Americans.

Without an agreement, tax hikes and spending reductions will begin taking effect in early January, steps that economists warn could renew the recession.

The Mexican economy contracted more than 6 percent during the 2008-09 U.S. financial crisis. While Garcia does not foresee such a large problem this time, he said the impact of any U.S. austerity measures would likely be immediate.

"Economies now react very quickly to these fiscal policies that are implemented," Garcia said. "So there's no doubt that as soon as it happens Mexico will start feeling the pain and the Mexican government will probably have to implement a few extraordinary programs to contain the blow," he said.

Mark Snowiss is a Washington D.C.-based multimedia reporter. He has written and edited for various media outlets including Pacifica and NPR affiliates in Los Angeles. Follow him on Twitter @msnowiss and on Google Plus.